Use the following to answer question:
Figure: The Restaurant Market
-(Figure: The Restaurant Market)Use Figure: The Restaurant Market.The figure shows curves facing a typical restaurant.Assume that many firms,differentiated products,and easy entry and exit characterize the restaurant market.In long-run equilibrium,the economic profit earned by the typical restaurant in the community will be:
A)negative.
B)zero.
C)equal to the level shown in the figure.
D)Not enough information is given to answer the question.

Question

Use the following to answer question:
Figure: The Restaurant Market 
-(Figure: The Restaurant Market)Use Figure: The Restaurant Market.The figure shows curves facing a typical restaurant.Assume that many firms,differentiated products,and easy entry and exit characterize the restaurant market.In long-run equilibrium,the economic profit earned by the typical restaurant in the community will be:
A)negative. 
B)zero. 
C)equal to the level shown in the figure. 
D)Not enough information is given to answer the question.

Quizplus · Accepted Answer

In the long-run equilibrium of a competitive market, economic profit tends towards zero. This is because new firms are attracted to enter the market due to the positive economic profit initially earned by existing firms, leading to an increase in supply and a decrease in prices. As prices decrease, the economic profit of existing firms also decreases, until it reaches zero in the long-run equilibrium. This is shown by the intersection of the demand and average total cost curves at point E in the figure, indicating that the typical restaurant earns zero economic profit in the long-run equilibrium.

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